ITR filing: Top 10 mistakes you need to avoid
Many individual taxpayers prefer to file their Income Tax Returns (ITR) themselves, but not everyone is an expert in the complex Income Tax Law. As a result, mistakes can occur when filing ITR online, leading to unsuccessful tax filings and potential penalties. Knowing common errors can prevent such consequences. We have highlighted 10 common mistakes to avoid while filing your ITR.
Using the wrong ITR form
Filing the wrong ITR form can result in rejected tax filings. The ITR form you need depends on your sources of income. Salaried individuals can use ITR Form 1, while those with capital gains from investments must use ITR Form 2. For self-employed individuals with business profits, ITR Form 3 is required. There are a total of seven ITR forms, so choose correctly.
Selecting the wrong Assessment Year
Taxpayers often confuse the terms "Assessment Year" and "Financial Year." When filing your ITR by July 31, 2023, you are reporting income earned between April 1, 2022, and March 31, 2023, which is the Financial Year 2022-23. The Assessment Year is always one year ahead of the Financial Year, in this case, 2023-24. Remember that the Assessment Year is ahead of the Financial Year.
Incorrect personal information
When filing ITR, accuracy in personal information is important. Incorrect details such as name, PAN, email ID, or phone number can lead to issues with processing your ITR. It can also result in delays in receiving your tax refund or refund rejections. Additionally, ensure that your contact information is up-to-date as the tax department might use it to communicate with you regarding your ITR.
Not disclosing all bank accounts
Many taxpayers possess multiple bank accounts. However, while filing their ITR, a significant number of them fail to disclose all of their bank accounts. This is a violation of Income Tax regulations. As per the rules, all taxpayers are obligated to declare information about their domestic and foreign bank accounts, including those that were closed during the financial year.
Not mentioning all income sources
When filing your Income Tax Returns, it is crucial to disclose all of your sources of income, including those from non-salary sources. You may have received additional income from rent, interest, dividends, capital gains, and other sources. Even if such income is exempt from tax, it is mandatory to mention all of these different incomes and their sources while filing ITR.
Not verifying form 26AS and form 16
Verify Form 26AS, which is similar to a bank passbook and includes details of your earnings, TDS, advance tax paid, etc. A mismatch between details in Form 26AS and the calculations in Form 16 provided by your employer can lead to inaccuracies in tax filings. Hence, it is important to crosscheck and verify all the information in both forms for accurate tax filing.
Not filing the ITR before the due date
The due date for filing ITR is usually July 31 of the Assessment Year, but it can be extended by the government. Failing to file by the due date may attract penalties, such as a late fee of up to Rs. 10,000, a penal interest rate of 1% per month on unpaid taxes, and a delay in receiving refunds for any excess tax paid.
Not filing ITR at all
While missing the deadline for filing returns is bad enough, not filing your ITR at all is definitely even worse. It can result in legal action by the Income Tax Department of India. The consequences of such proceedings include penal interest on tax dues, a penalty of 50% of the tax avoided, or even imprisonment ranging from three to seven years.
Not disclosing capital gains or losses
Taxpayers often don't fill in details of capital gains and losses when submitting their ITR. This mistake can lead to serious consequences, such as an Income Tax Audit. Current tax laws require individuals to disclose all Capital Gains or losses while filing their ITR. This disclosure is critical as tax authorities now have advanced systems to detect such omissions.
Forgetting to claim deductions
To lower your tax liability, make sure to claim all eligible deductions such as medical insurance, education loan interest, and charitable donations. However, it is important to note that these deductions are only applicable if you are filing your income tax under the old regime. By claiming these deductions, you can effectively reduce your taxable income and pay less tax.